Zynga announces 5% staff cut, office closing

Social-game maker Zynga Inc. said Tuesday, Oct. 23, 2012, it is cutting 5 percent of its staff, shutting offices and ending more than a dozen titles to compensate for slowing sales growth. The company went public this past December. Photo Credit: Bloomberg News, 2011

Social-game maker Zynga Inc., which went public this past year, is cutting 5 percent of its staff, shutting offices and ending more than a dozen titles to compensate for slowing sales growth.

San Francisco-based Zynga is closing an office in Boston, trimming staff in Austin, Texas and weighing the closure of studios in Japan and the United Kingdom, chief executive Mark Pincus wrote Tuesday in a memo obtained by Bloomberg. The cuts affect about 142 of the 2,846 workers Zynga had at the end of 2011.

Zynga has fallen 78 percent since the December initial public offering on disappointing demand for its games on Facebook Inc. and a failure to produce runaway hits for wireless devices.

Layoffs needed?

Trimming staff may help the company do a better job focusing on mobile games, said Colin Sebastian, an analyst at Robert W. Baird & Co.

"As much as head count reductions are painful, I think it's a necessary alignment of their resources," said Sebastian, who has a neutral rating on Zynga. "They were overstaffed in core social gaming. There needs to be a more aggressive transition into mobile games."

The company, scheduled to release third-quarter results later, is expected to report a net loss of $87.4 million on sales of $291.5 million, the average of analysts' predictions compiled by Bloomberg. The company reported a profit of $12.5 million on sales of $306.8 million a year earlier.

Zynga cut its forecast for full-year bookings, a predictor of sales, this month, citing lower demand for titles such as The Ville.

Sales forecast

The company said at the time that it expects to report a net loss of $90 million to $105 million for the third quarter. Excluding some items, it will break even or post a loss of 1 cent a share. Third-quarter revenue was $300 million to $305 million, Zynga said.

Shares of Zynga fell 5.2 percent to $2.20 at the close Tuesday on Wall Street as news of the cost reductions began trickling out to blogs and news services.

"We initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future," Pincus wrote in the memo. "As part of these changes, we've had to make some tough decisions around products, teams and people."